Asset Management Accounts Lend Flexibility To Finances

Asset Accounts Lend Flexibility To Your Finances

G.Robert Cavedon of the Broad Brook section of East Windsor uses his Schwab One asset management account to do all of his stock trading and much of his household banking.

Although lower commissions were the initial attraction of the account, Cavedon said he also likes the interest paid on the checking account and the monthly statements, the credit card and the absence of annual fees.

"The yield is better. I don't get [interest] out of my bank checking account." As interest rates continue to fall -- prompting many small investors to pour more of their money into other vehicles to try to get the highest possible yields -- asset management accounts, sometimes called cash management accounts, have become increasingly popular.

With asset management accounts, investors' money earns money-market rates of about 4 percent, and has a potential for higher total yields from stock and bond investments in the account.

In contrast, some checking accounts pay no interest.

Asset management accounts also allow a diverse portfolio of investments. Participants can invest in stocks, bonds or mutual funds, write checks and use an ATM or credit card linked to the account.

And each month, investors get a statement listing all of their investment holdings, checking and credit card transactions.

Also, any idle cash in a checking account, or dividends paid on stocks, bonds or mutual funds, can be automatically reinvested, or "swept," into a money market fund where it earns income.

John Markese, director of research for the American Association of Individual Investors in Chicago, said the accounts are best used as "sweep accounts," in which any excess cash can be swept into a money market account.

"It doesn't seem to be the best way to run a household, but you could," Markese said.

"Most of them have unlimited checking."

But generally, brokerages say asset management accounts are best used primarily as investment accounts, to ensure an investor does not eat away part of the portfolio.

"This is probably the decade of savings. Baby-boomers are homeowners and they are looking at retirement and education expenses," said Charles M. Vincent, a brokerage industry analyst for Provident National Bank in Philadelphia.

"They are demanding a far more sophisticated financial services product."

And the brokerage industry is taking advantage of this demand, as well as the declining interest rates, to compete with banks for deposits, he said.

"The brokerage firms and mutual funds are all going after that market," Vincent said.

"Asset management can be a very profitable business, once you reach a critical mass.

"The profit margins are quite wide."

Mara Hilderman, a brokerage industry analyst for Moody's Investor Service in New York City, said cash management accounts are an extension of brokerage firms' focus on managing investments.

Shearson Lehman Brothers, for example, added an automatic fund-transfer feature to its asset management account, which allows investors to transfer money back and forth between Shearson asset management accounts and any U.S. financial institution that is part of the automated clearinghouse network.